Yesterday afternoon (06/06/2023), the report of the Working Group on the National Tax System of the Chamber of Deputies (“Group”) was released. Led by Federal Deputy Aguinaldo Ribeiro, the Group held a series of public hearings, technical analyses and meetings with tax authorities and entities representing various sectors over the past few months.

As a result, the guidelines were established which, according to the Group's conclusions, PEC 45/2019 must contain in order for the tax reform to advance effectively. Below, we summarize the main conclusions:

• Unification of consumption taxes (IBS and Selective Tax): following the guidelines already established by PECs 45 and 110, the Group concluded that it was necessary to establish a Tax on Goods and Services (“IBS”) to replace IPI, ICMS, ISS, PIS and COFINS, in addition to establishing a Selective Tax, whose primary function would be of an inductive/extra-fiscal nature;

• IBS Dual: The adoption of a type of dual VAT has been suggested, which in practice would be as if there were two IBSs, one under the jurisdiction of the Federal Union and the other shared between States and Municipalities. The objective, it seems, is not to undermine the financial autonomy of the federated entities, a point that in several previous attempts at reform was raised as an obstacle to the advancement of the unification of taxes on consumption;

• Rates: use of a standard tax rate, without prejudice to the establishment of differentiated tax rates for specific goods and services (although such practice must be effectively adopted on an exceptional basis – e.g.: health, education, public transport may have differentiated tax rates);

• Calculation basis, non-cumulativity and use of credits: The IBS should focus on outside (unlike what happens, for example, with ICMS), in order to avoid distortions and bring greater clarity about the effective tax burden. Non-cumulativeness should be complete, allowing all expenses, regardless of whether they are linked to the company's core business, to generate the right to IBS credit, which will not depend on proof of effective payment of the tax by the supplier;

• Favorable Tax Regimes: the Group established the need to maintain the Manaus Free Trade Zone (“ZFM”) and the Simples Nacional;

• Specific Tax Regimes: some services or activities, whose nature requires a low volume of credit – such as financial services, operations with real estate, insurance and cooperatives – may have a special and specific system for calculating IBS;

• Validation of ICMS tax benefits: in order to provide legal certainty to companies that have established their operations based on the granting of tax benefits, the Group proposed maintaining the special regimes granted until 2032, as already provided for in LC 160/2017. There was no detail on the operational aspects to enable the maintenance of the benefits;

• Regressivity and Cashback: The Group presented the adoption of the system of cashback low-income families. The idea is to redirect part of the revenue collected to this group and, in doing so, avoid the regressive nature of the tax, which is common to taxes on consumption; and

• Transition: Due to the need to maintain the tax benefits already granted, the transition period – initially designed for six years – may be extended to ten years. Two years would be dedicated to the first phase of the transition, which aims to unify federal taxes, while the remaining eight years would be dedicated to replacing ICMS and ISS.

The result of the Group's work should result in the presentation of a replacement project for PEC 45. The expectation is that the text will be put to a vote between June and July.

The Mazzucco&Mello tax team is closely monitoring all developments on the subject and is available to provide any clarifications required.